China: A New Core Rises

After an impressive rebound from the global crisis, China is running into new headwinds. The government is scaling back its massive monetary stimulus, prompting a slow-down in the growth of activity. Meanwhile, rising demand for exports from consumers in the US and Europe can no longer be relied upon. Increasing domestic demand is more important than ever given the mounting signs that the recovery in the rest of the world is faltering. Yet there are plenty of doubts about where any new growth will come from.

To answer that question, it helps to think in terms of economic geography. The country can be divided roughly into three zones. There is the prosperous, industrialised coastal belt from Beijing in the north through Shanghai in the east to Guangdong in the south. Then, to the far west, there is a vast expanse that has received heavy public investment but remains relatively poor and underdeveloped in spite of a few pockets of prosperity.

It is the third region – the centre – that is providing the new boost to the economy. In provinces such as Anhui, Hunan and Jiangxi, previously unfashionable cities are entering a phase of “industrial take-off”. A combination of rising costs and wages on the coast, better rail and road infrastructure, and stimulus spending is encouraging Chinese companies to join a rush that started as a trickle a decade ago. Hefei is one of the most striking examples.

Also related, the Wall Street Journal published a map showing major industrial clusters in China.